KKB Engineering - Gets RM28mil pipe piles contract Buy

- We maintain BUY on KKB Engineering Bhd, with a fair value of RM1.80/share – representing a 10% discount to our sumof-parts value for the stock of RM2.00/share.

- KKB announced yesterday that it has been issued a Letter of Intent by KACC–JAKS JV for the supply of steel pipe piles. A formal Letter of Award shall be issued upon finalisation of appointment by KJJV management board.

- The award once formalised will be worth about RM28mil. The supply of the pipe piles is scheduled to commence within 3Q12 and completed within 1Q13.

- Contract flows have been slow – we estimate that KKB has secured less than RM100mil worth of jobs so far this year. However, we are maintaining our annual new order book assumption at RM300mil, for now.

- Management views 2012 as a year of consolidation and capacity rebuilding at its Muara Tebas fabrication facility, for which it is poised to bid aggressively for new opportunities in the oil and gas industry support services from end-2012 onwards.

- As at end-March 2012, KKB had tendered for RM320mil worth of jobs comprising 60% in engineering and the remaining in manufacturing. The results of the bids are expected to be known by the end of 3Q2012. The latest award was part of those tenders.

- KKB’s manufacturing division is benefitting from an increase in demand stemming from the supply of pipes for rural water supply projects in both Sabah and Sarawak.

- Among its major jobs now, KKB is in the midst of completing the RM70mil earthworks for OM Sarawak, at the latter’s 500-acre manganese and ferro silicon alloy smelter site in Samalaju. 

- The project has been delayed by about a month, leading to KKB and its sub-contractor, Tan Sri Ting Pek Khiing’s privately-owned Global Upline Sdn Bhd in a current  legal dispute.

- Management believes the impact stemming from the late delivery would be minimal, if at all, given the near completion of the job. 

- We reiterate our BUY for now, premised on:- 1) potential engineering and construction jobs remaining within Samalaju in which foreign investors are investing heavily in multi-billion ringgit factories in the next 2-3 years; 2) its water pipes supply for the rural water projects; 3) and decent dividend yield of 6%.  

Source: AmeSecurites